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Thursday, July 15, 2010

The Myth of Visible Sales Taxes

One of the justifications for applying the GST and HST at the cash register is that this makes it a visible sales tax. Unfortunately, it is this very feature that makes this tax invisible at the most critical time: when consumers make purchasing decisions.

Canadians are becoming increasingly accustomed to seeing added charges on top of advertised prices. Eco fees just add to standard HST or GST plus provincial sales tax. Things are worse if you want to fly; the number of added charges on flight costs is almost uncountable.

An unfortunate side effect of this trend is that we don’t know what the final price of an item will be even knowing the advertised price. This makes it difficult to make sound purchasing decisions. By adding these charges later to make them visible, they become invisible when we make the decision of whether to buy.

There is some justification for applying sales taxes after the fact because not all customers must pay GST or HST. For example, online retailers must routinely calculate different sales tax depending on where the purchaser lives. Another justification is that these sales taxes are a fixed percentage that people tend to understand reasonably well.

Eco fees are a very different matter. The amounts vary wildly. There is no reason why eco fees shouldn’t be just included in advertised prices. If retailers want to make eco fees more visible, then they can include a mention of the eco fee amount along with the advertised price that includes this fee.

If this trend continues too far, then advertised prices will bear no resemblance to the all-in price the consumer must pay. (This has already happened with cars and airline flights.) I would prefer to see all-in pricing as is common in much of Europe.

Yes I agree. I think any benefits are overwhelmed by the fact that people are now accustomed to showing up at the cash register and being asked to pay more than the sticker price. Whether that's because of taxes, error, or fraud, it's increasingly hard to tell.

This is an interesting point, and I haven't really given it a lot of thought. I'm so used to having the taxes added on, I never considered there might be another way of doing it. I often avoid taxes (and get better prices) by using eBay for small purchases.

The most egregious example of misleading prices came, as you alluded to, from a used car flyer. The prices were remarkably low, and I immediately looked for the catch. The footnote said that prices included a $5000 trade-in credit. I wouldn't consider dealing with such a misleading company unless they were the only option.

@Patrick: Back in the days when all transactions were in cash it wasn't unusual for people to work out what they owed while standing in line (at least roughly) and have the cash ready. Now, most people just hand over a card to be charged some random amount.

@Big Cajun Man: If a vendor builds in inflated extra costs in the case where the advertised price is an all-in price, at least you can do some comparison shopping.

@Gene: I don't know whether to laugh or cry about the $5000 trade-in trick. I guess the next "innovation" will be to assume a $10,000 trade-in.

@Rick: Eco fees aren't a fixed percentage of the price of an item. The fee is intended to reflect the cost of recycling or proper disposal of an item. This price varies significantly from one item to the next. I don't know if they exist in Utah. Ontario has had them for a while now.